New Company, Same Team: What Documents Do Employees Need with Director Changes?

Hi, if a new company is formed with the same staff and management but with a change in directors, what documents should be provided to the employees along with their relieving letters? Additionally, will there be any issues for employees who have only completed 3-5 months of service in the previous company? Can anyone help me out with this?

You cannot just inform the employees that a new company has been formed, and henceforth the directors will be different persons. You have to address a lot of employment matters.

These include the length of service, the date of joining of employees in the new company, whether the service with the old company will be considered for gratuity calculation when employees leave the new company, how to handle the service with the old company if not counted, and whether employees will receive retrenchment compensation.

When a new company is formed with the same staff and management but new directors, employees should receive a relieving letter, an experience letter, a new appointment letter, and full and final settlement details.

Employees with 3-5 months of service in the previous company should not face significant issues, although their tenure will be shorter in the experience documentation.

Primary Considerations in Company Formation

Issuing relieving letters and fresh appointment letters to each employee is secondary. The primary issue to be resolved is to understand the objective of forming the new company. If it is genuine, employees should know whether the dissolved or liquidated company has complied with the provisions of the Industrial Disputes Act concerning closure and whether compensation has been paid. If retrenchment compensation has not been paid, it should be determined whether the service of the employees has been considered or agreed to be considered in the new company, and whether the service conditions, including salary, in the new company are superior to the old one. Alternatively, employees should be given the option of being relieved from the old company by accepting compensation or not.

Bipartite Settlement and Legal Compliance

Normally, these considerations will be embodied in a bipartite settlement among the management of the old company, whose obligation is to ensure payment of compensation, gratuity, leave encashment, etc., the management of the new company, which will consider the date of joining of each employee as the date of joining their company and undertake to pay gratuity, etc., based on the date of joining the old company, and the employees or their representatives. Such settlements are required to be submitted to the Labor Department so that they become a legal document with the flavor of an award that will be binding on the management and employees.

Not following the provisions of the Industrial Disputes Act and not making the referred settlement can lead to a lot of confusion in the future. Moreover, the transfer may be seen as an attempt to avoid payments such as gratuity by the management.

The present situation involves a change in management and the company's name. Since employees have worked less than 240 days (completed 3-5 months), they are not eligible for end-of-service compensation.

As the newly formed company wants to absorb employees from the old company, the management should terminate all employees on the date the previous company is dissolved. A fresh appointment letter with a later date needs to be issued to the absorbed employees in the new company. Obtaining resignations from the employees before absorption into the new company is the best and most settled course of action.

Okay, but can we provide any specific document like an NOC (No Objection Certificate) for continuity of service where employees' experience remains the same with a company even if they change organizations in the future? This would ensure that they do not face any issues at that time.

Revati Attam,

Issuing any document like an NOC or a continuity of service to absorbed employees could create legal problems for the company. This action may be seen as the new company attempting to camouflage the old one. The continuity of service is out of the question because the old company no longer exists after the formation of the new company with new names. Experience letters can only be issued to employees on the old company letterhead, for those not absorbed by the new company. For further clarification, please contact [Phone Number Removed For Privacy-Reasons].